The Value of Short Inventory Lead Time

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In today’s market, businesses are looking for every advantage possible. Maybe the focus is on increasing profits through improving product, or cutting costs. One way to improve profitability is by reducing inventory lead time, or the amount of time that passes between your customer placing an order with your business and receiving their product.

Why is short inventory lead time important?

Short inventory lead time equals more profit. Customer satisfaction is crucial to keeping a business afloat. With a market full of competitors, customers can easily find another business that can satisfy their high standards for delivery, quality, and cost. A short inventory lead time can provide an advantage. In fact, trends have indicated that quality and delivery often surpass costs in terms of customer’s values. And of course, a long and drawn out lead time means an overabundance of inventories, expedition costs, excessive overtime pay, and inefficient use of resources. And what do these factors add up to? High cost for your company.

Additionally, a longer inventory lead time translates to more time that your inventory is sitting in your warehouse or store room. As you know, excess inventory adds no value, and in fact is incurring cost. In fact, that product incurred cost before it even was stored in your inventory.

How can you implement practices that will lead to shorter lead time?

Operations management is going to be a key component of keeping your inventory lead time short. There are several different kinds of lead time that can all be reduced to minimize cost. These lead times are set up time, queue time, and move time. There are two main ways for companies to shorten their all-around lead time: 1. Practice better scheduling and production control, and 2. Re-engineer manufacturing operations. To reduce lead times by adopting better scheduling and production control habits, you may find it helpful to invest in some finite capacity scheduling software. This software will help you determine how to split lots, determine lot sizes, and what delivery dates will work best. To reduce inventory lead times by re-engineering manufacturing, you may incorporate some of the following strategies into your system: shorter product move distances, a narrow set-up variety as opposed to wide, and items that are dissimilar grouped together. This changes can set the stage for reducing set up time, queue time, and move time.

By using the strategies of better scheduling and re-engineering manufacturing, your business is almost guaranteed to reduce inventory lead time. This translates to less cost, and more success.